Comprehensive Study Notes: English for Economists - Level 2

General Information and Introduction to English for Economists - 2

• Publication Details:     * Authors: Lusine Harutyunyan, Susanna Chalabyan, Armine Grigoryan, Kristina Torgomyan.     * Title: English for Economists - 2 (Teaching manual for students of economics).     * Publisher: ASUE "Tntesaget" Publishing House, Yerevan, $2022$.     * Approval: Guaranteed for publication by the ASUE (Armenian State University of Economics) Scientific Council.     * Reviewers:         * Sh. Ye. Ghazaryan ($Ph.D.$, Associate Professor of Foreign Languages, Plekhanov Russian University of Economics).         * O. B. Bagrintseva ($Ph.D.$, Associate Professor, Head of Department of English and Technical Translation, Astrakhan State University).         * A. S. Khachatryan ($Ph.D.$, Associate Professor of the Department of Languages, ASUE).         * L. L. Ghazaryan (Assistant of the Department of Languages, ASUE).
• Preface (Nakhaban):     * Objective: To develop professional English reading skills for students of economics and build specific economic vocabulary.     * Target Audience: Undergraduate and graduate (Bachelor and Master) students, and professionals in various economic sectors.     * Source Material: Original, unedited excerpts from international "Economic Theory" textbooks and reliable internet sources to maintain authenticity for future research.     * Structure: Consists of $15$ lessons (Units). Each unit contains a text, vocabulary notes, and exercises focused on terminology and core concepts.     * Interactive Features: Includes crosswords, listening comprehension exercises from Ted.com and YouTube.com, and additional reading materials.

Unit I: Fundamentals of Economics

• Key Definitions and Terms:     * Economics: The scientific study of the system by which a country’s wealth is made and used.     * Economy: The system of trade and industry by which the wealth of a country is made and used.     * To Economize: To try to save money by reducing the amount spent.     * An Economist: A person who studies or has special knowledge of economics.     * Economic: Relating to trade, industry, and money.     * Economical: Not using a lot of money, energy, etc.
• Scarcity and Allocation:     * Scarcity Definition: The limited nature of society's resources. Even abundant resources like water and air are not available everywhere to meet everyone's needs.     * Individual vs. Society: Individuals must choose what to buy within income limits; society must determine what to produce from limited resource sets.     * Economic Goal: The study of how individuals and societies allocate limited resources to satisfy nearly unlimited wants.
• Microeconomics vs. Macroeconomics:     * Microeconomics: The study of individual units within the economy, such as households and businesses. Example: One worker getting laid off.     * Macroeconomics: The study of overall aspects and workings of an economy. Topics include inflation (overall price increase), economic growth, employment rates, interest rates, and national productivity. It also examines government policies regarding state budgets, money supply, and international trade.
• Foundations of Economic Analysis:     * Incentives     * Trade-offs     * Opportunity cost     * Marginal thinking     * Principle that trade creates value

Unit II: Incentives

• Definitions:     * Incentives: Factors that motivate one to act or exert effort.     * To Incentivize: To motivate or encourage action.     * Extrinsic Incentives: Material rewards (money) or threats of punishment.     * Intrinsic Incentives: Feelings of personal fulfillment and satisfaction.
• Categories of Incentives:     * Positive Incentives: Encourage action through rewards (e.g., end-of-year bonuses, tax rebates).     * Negative Incentives: Discourage action through punishments (e.g., speeding tickets, fear of the dentist).     * Direct Incentives: Easy to recognize (e.g., "Cut my grass and I'll pay you $30$").     * Indirect Incentives: Harder to recognize.     * Example (Welfare): A society has a direct incentive to provide a safety net for the poor. However, if welfare payments are higher than potential wages, it creates an indirect incentive for recipients to stay on welfare instead of seeking work.
• Incentives and Innovation:     * The Patent System: Creates a financial reward for creativity by granting exclusive rights for a period. Without patents/copyrights, inventors would bear the costs but competitors would steal the rewards.     * Economic Impact: Steve Jobs/Apple held over $300$ patents upon his death in $2011$. Global illegal downloading of music/books reduces the incentive to produce new content.

Unit III: Choices and Alternatives in Economics

• Trade-offs and Scarcity:     * Every decision incurs a cost because resources (including time) are limited ($24$ hours a day).     * The "Gangnam Style" Example: The video was viewed over $2$ billion times. At $4$ minutes and $12$ seconds per view, this equals over $140$ million hours. In this time, humanity could have built $6$ Burj Khalifas or $4$ Great Egyptian Pyramids.
• Opportunity Cost:     * Definition: The next-best alternative that must be sacrificed when a choice is made.     * Decision Making: The goal is to minimize opportunity cost by selecting options with the largest benefit.     * Mick Jagger Case: Jagger attended the London School of Economics; his opportunity cost for becoming a musician was forgoing an economics degree.
• Economic Thinking and Marginal Analysis:     * Economic Thinking: Purposeful evaluation of available opportunities.     * Marginal Thinking: Evaluating whether the benefit of one more unit of something is greater than its cost.     * Example (Grades vs. Work): A student decides to work a little more for extra money (tangible benefit) at the cost of lower grades (tangible cost).

Unit IV: Trade Creates Value

• The Nature of Trade:     * Definition: The voluntary exchange of goods and services.     * Value Creation: A voluntary transaction involves two parties who both believe they are better off. Example: Paying $4$ for milk when you were willing to pay $5$ for convenience; the owner sells it for $4$ after buying it for $3$.
• Specialization and Comparative Advantage:     * Comparative Advantage: The ability to produce at a lower opportunity cost than a competitor.     * Specialization: Focusing on one skill (e.g., physician, teacher, plumber) and trading for other needs. This increases overall efficiency.
• Global Trade and Outsourcing:     * Globalized Trade: Moving goods and jobs across borders.     * Outsourcing: US firms hiring lower-cost labor in India. While painful for the US worker who loses a job, it provides income for the Indian worker and lower prices for consumers. It is considered a component of long-run economic growth.

Unit V: Institutions that Raise Living Standards

• Historical Context:     * Humanity lived without sustained growth for millennia. Ancient Greeks had the intellect for steam engines but lacked the institutional framework for an Industrial Revolution.
• Four Key Institutions for Growth:     * Democracy: Governments began reflecting society's interests (merchants/manufacturers) rather than just the nobility.     * Limited Liability Corporation (LLC): Reduced investment risk; investors could only lose their investment amount, not be liable for corporate debt.     * Patent Rights: Gave inventors exclusive rights to sell inventions, creating a financial incentive to innovate.     * Widespread Literacy/Education: Necessary for inventing and mass-producing new technologies. Mandatory primary/secondary education paved the way for growth.
• The Problem of Abundance:     * Modern growth has made obesity a greater public health problem than starvation in many nations.     * The challenge for developing nations is to adopt these institutions while avoiding past mistakes like pollution and resource depletion.

Unit VI: Demand

• Market Dynamics:     * Market Definition: Any institutional arrangement (physical or cyberspace) where buyers and sellers trade.     * Demand: The quantity of something people are both willing and able to pay for at a specific price.
• The Demand Curve:     * Relationship between price and quantity demanded is inverse (downward-sloping).     * Determinants of Demand ("Everything Else"):         * Tastes and Preferences.         * Prices of Related Goods (e.g., if movie tickets get expensive, demand for concert tickets might rise).         * Income:             * Normal Goods: Demand increases as income rises.             * Inferior Goods: Demand decreases as income rises (e.g., discounted bread).
• Philip Kotler’s Eight Demand States:     1. Negative Demand (consumers dislike/avoid product).     2. Non-existent Demand (unaware/uninterested).     3. Latent Demand (needed but no existing product).     4. Declining Demand (buying less frequently).     5. Irregular Demand (seasonal/hourly variation).     6. Full Demand (adequately buying everything available).     7. Overfull Demand (demand exceeds supply).     8. Unwholesome Demand (attraction to products with undesirable social consequences).

Unit VII: Supply

• The Law of Supply:     * The quantity supplied rises when prices rise and falls when prices fall (positive relationship).
• Determinants of Supply:     * Input Prices: Costs of cream, sugar, labor, etc. Higher input prices make production less profitable, shifting supply left.     * Technology: Innovations like mechanized machines reduce costs and increase supply.     * Expectations: If producers expect future price increases, they may store current production and reduce current supply.     * Number of Sellers: More sellers increase market supply.
• Elasticity of Supply:     * Measures how quantity supplied responds to price changes.     * Inelastic Supply: Quantity changes slightly (e.g., beachfront land).     * Elastic Supply: Quantity changes substantially (e.g., manufactured goods).     * Time Factor: Supply is more elastic in the long run than the short run.

Unit VIII: Fundamentals of Markets

• The Invisible Hand:     * Adam Smith’s theory: Producers serve their own interest (profit), but in doing so, they provide the goods consumers want.
• Market Structures:     * Competitive Market: Many buyers and sellers; similar goods; no single participant can influence the price. Example: Global salmon market.     * Imperfect Market: Buyers or sellers can influence the price. Examples include Monopoly, Oligopoly, and Monopolistic Competition.     * Market Power: A firm's ability to influence the price (leverage) by controlling supply/demand. Usually found in specialized or unusual products (e.g., Empire State Building views).

Unit IX: Monopoly

• Henry Ford and Market Power:     * In $1908$, Ford’s Model T dominated the industry. He dictated prices and features, allegedly saying, "Give them any color they want [as long as it's black]."
• Characteristics of Monopolies:     * Single producer controls the entire market supply.     * Ability to alter prices without losing all customers (unlike competitive firms).     * Higher prices and larger profits than in competitive markets.
• Antitrust Laws:     * Sherman Antitrust Act ($1890$): Designed to curb monopoly power and promote competition.     * Government actions: Preventing mergers (e.g., Coca-Cola/Pepsi or Microsoft/Intuit), breaking up companies (e.g., AT&T in $1984$).
• DeBeers Diamond Case:     * Founded in $1888$ by Cecil Rhodes. Controls about $80\%$ of global diamond production. Uses advertising ("A diamond is forever") to differentiate diamonds from substitutes like rubies/emeralds to maintain market power.

Unit X: The Monetary System

• The Role of Money:     * A social custom allowing a claim to future goods/services. Money facilitates production and trade, allowing specialization.
• Barter vs. Money:     * Barter: Requires a "double coincidence of wants" (two people having what the other wants simultaneously), which is inefficient.     * Money: Eliminates the need for direct exchange. Transactions can be "roundabout."
• Kinds of Money:     * Commodity Money: Has intrinsic value (e.g., Gold standard, cigarettes in POW camps).     * Fiat Money: No intrinsic value; established by government decree (e.g., US Dollar).
• Functions of Money:     * Medium of Exchange: Item used to buy goods.     * Unit of Account: Yardstick used to post prices and record debts.     * Store of Value: Item used to transfer purchasing power from present to future.
• Liquidity: The ease with which an asset can be converted into the economy's medium of exchange. Money is the most liquid asset; real estate is less liquid.

Unit XI: Profits

• Calculating Profit/Loss:     * Formula: $\text{Profit (or Loss)} = \text{Total Revenue} - \text{Total Cost}$.     * Total Revenue: $\text{Quantity Sold} \times \text{Price}$.
• The Two Components of Cost:     * Explicit Costs: Tangible, out-of-pocket expenses (e.g., power bill, meat supply bill).     * Implicit Costs: Opportunities forgone by using owned resources (e.g., the interest a million dollars could have earned in a bank instead of being used to buy a McDonald’s franchise).
• Economic Profit: Unlike accounting profit, economic profit subtracts both explicit and implicit costs.

Unit XII: Public and Private Goods

• Private Goods:     * Rivalrous: One person's consumption prevents another's.     * Excludable: Those who don't pay can be prevented from using it (e.g., a car or cellphone).
• Public Goods:     * Non-rivalrous: One person using it doesn't reduce its availability to others.     * Non-excludable: Impossible to prevent people from benefiting (e.g., National Defense, Public Health, Clean Air).
• The Free-Rider Problem: People benefit from resources without paying for them.
• Tragedy of the Commons: Over-consumption of shared resources when individuals act in self-interest (e.g., overgrazing a common field).

Unit XIII: The Business Cycle

• The Roaring Twenties and the Great Crash:     * The US economy expanded from $1921$ to $1929$.     * Black Thursday (October 24, 1929): The stock market crashed. Over $40$ billion in wealth vanished by year-end.
• The Great Depression:     * Unemployment rose to over $9\%$ in $1930$ and continued to swell.     * Agricultural production and automobile manufacturing plummeted.     * Gave birth to modern Macroeconomics (the study of aggregate behavior).
• Cycle Definitions:     * Recession: Decline in GDP for two or more consecutive quarters.     * Depression: A recession that lasts longer and has a larger decline (GNP/GDP decline $> 10\%$).

Unit XIV: Unemployment

• Impact of Job Loss: Leads to lower living standards, anxiety, and reduced self-esteem.
• Three Types of Unemployment:     1. Frictional: Short-term; time spent matching workers with jobs.     2. Structural: Long-term; occurs when the number of jobs available is insufficient for the number of seekers (labor quantity supplied $>$ quantity demanded).     3. Cyclical: Year-to-year fluctuations associated with short-run economic ups and downs.
• Labor Force Participation: In the US, women's participation rose from $33\%$ post-WWII to $59\%$ in $2004$, while men's participation fell from $87\%$ to $73\%$ due to longer schooling and earlier retirement.

Unit XV: Inflation

• Defining Inflation:     * An increase in the average level of prices across the entire economy, not just specific goods.     * Deflation: A decline in average prices.
• Nominal vs. Real Income:     * Nominal Income: Total money received in a period.     * Real Income: The purchasing power of that money. Even if nominal income is constant, if prices rise, real income falls.
• Redistributive Effects:     * Inflation acts like a tax, taking wealth from some (those with fixed nominal incomes) and giving to others (those whose assets rise in value).     * The "Robin Hood" problem: Unlike the legendary figure, inflation's "tax" may take from the poor and give to the rich.

Questions & Discussion (Combined Units)

• Fundamentals: Why become an economist? Job positions include analysts, traders, and professors.
• Innovation: Why would firms invest in R&D if others could copy work immediately? This justifies the legal necessity of patents.
• Macro vs. Micro: Is a single worker getting laid off macro or micro? Because it is one unit, it is micro. If it happens across the entire economy, it is macro.
• Market Logic: When hotel rates near Disney World peak in March ($Spring Break$), this is an example of supply and demand interacting to establish price.
• Terms and Abbreviations:     * CE0: Chief Executive Officer     * VAT: Value Added Tax     * GDP: Gross Domestic Product     * M&A: Mergers and Acquisitions     * HR: Human Resources     * IP: Intellectual Property